Daily Market Commentary

Central Banks Continue To Flood The System With Liquidity

Payroll CreationStock Market Commentary:
Friday, May 3, 2013

We changed the status from rally under pressure to confirmed rally in our Tuesday 4/23/13 update and noted that the bulls are back in control of this market. So far, every pullback this year has been very small in both size (% decline) and scope (days, not weeks). As long as this healthy action continues we shall continue to err on the long side. As we have noted before, the market bent but did break…yet.

Monday-Wednesday’s Action: Stocks Edge Higher Into Fed & ECB Meetings

Stocks were quiet on Monday after Italy announced a new recovery plan and the latest round of mixed economic and earnings data was released. Personal income rose +0.2% in March which missed the Street’s estimate for a gain of +0.3%. Elsewhere, personal spending rose +0.2% which beat the Street’s forecast for a gain of +0.1%. Pending home sales rose 1.5% which was better than the Street’s estimate for a gain of +1%.
Stocks rallied on Tuesday helping the benchmark S&P 500 hit a new record high as investors digested mixed earnings and economic data. The S&P/Case-Shiller composite index of 20 metropolitan cities surged +9.3%, enjoying its largest annual gain in seven years. Separately, consumer confidence rebounded to 68.1 in April as Americans felt more optimistic about the economy, housing and the jobs market. The report topped estimates for a reading of 60.8. On a negative note, the Chicago manufacturing index unexpectedly fell to 49 in April which was below the boom/bust level of 50.
Before Wednesday’s open, China said its Purchasing Managers’ Index (PMI) fell to 50.6 in April. This was the latest in a series of weaker-than-expected economic data from China and led many to question the health of the global economy. In the US, ADP, the country’s largest private payrolls company, said US employers only added 119k new jobs in April which missed the Street’s estimate for a gain of 155k. This was the lowest reading since September 2012 and was below March’s downwardly revised 131k reading. The ISM Manufacturing index fell to 50.7 in April which missed the street’s estimate for 50.9. Elsewhere, March Construction spending tumbled -1.7% vs +1.5% in February.  The Fed held rates steady and largely reiterated their recent stance of keeping rates artificially low until the  unemployment rate falls to 6.5% and inflation hits 2%. Looking at earnings, so far, over 60% of stocks in the S&P 500 have reported Q1 results and 70% have topped very low estimates.

Thursday & Friday’s Action: All Eyes On April’s Jobs Report

Before Thursday’s open, the ECB lowered rates to help stimulate their tepid economy. ECB president Mario Draghi said that the ECB was open to negative deposit rates which sent the Euro and a slew of European stock markets lower. In the US, weekly jobless claims fell by 18k to 324k which was below the Street’s estimate for 345k and fell to a 5 year low. Before Friday’s open, the Labor Department said US employers added 165k new jobs and the unemployment rate slid to 7.5% which is a four year low.

Market Outlook: Confirmed Rally

It is important to note that the S&P 500 held its 50 DMA line almost to the penny in the middle of April on a closing basis which was a very healthy event. Elsewhere, The Nasdaq Composite, Nasdaq 100, Housing (XHB), Financials (XLF), Transports (IYT), Small (IWM) and Mid caps (MDY) are all back above their respective 50 DMA lines. For those of you that are new to our work, I keep track of the market status differently than other people. My goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae. Looking forward, this market looks strong as long as the benchmark S&P 500 holds above its 50 DMA line. As always, keep your losses small and never argue with the tape.

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